Retail banking is one example of an industry that involves maintenance of an inventory that includes a mix of multiple products. In some industries, those products are referred to using stock keeping units (SKUs).
In retail banking, customer's are served at banking centers. A banking institution maintains an inventory of bills and coins that will meet the daily needs of the banking center's customers. Seven denominations of cash are commonly required by customers: 1, 2, 5, 10, 20, 50 and 100 dollars. A cash vault may be used to hold excess inventory for the banking center and for multiple other banking centers. Each banking center, therefore, may have a cash vault that is designated to serve that banking center. (A cash vault is often located in the same geographic area as the banking centers that it serves.) The banking center orders cash from the cash vault (which may be referred to as the “Servicing Cash Vault”) according to a preset schedule. An order may require that cash be shipped from the banking center to the servicing cash vault (a “ship-out”). An order may require that cash be shipped from the servicing cash vault to the banking center (a “ship-in”).
Cash is ordered at the beginning of a “lead time” that leads up to the “order period” (or “horizon period”) during which the ordered cash is to be used. Enough cash must be ordered to maintain proper inventory during the order period. At the time an order is submitted—i.e., at the beginning of the lead time, the amount of cash present at the banking center is known. The amount of cash that will be present at the beginning of the order period, however, is not known. The amount of cash that will be present at the beginning of the order period must, therefore, be estimated. It is estimated based on the amount of cash present at the time the order is submitted. Assumptions must be made regarding increases and decreases of cash inventory during the lead time. Assumptions also must be made about how much cash will be required during the order period.
When an order is generated, a recommended net quantity (ship-in−ship-out) is systematically calculated based in part on the forecasted net usage for each day between order generation and subsequent scheduled delivery or pickup (the order “lead time”) and in part on forecasted usage during the days between the next shipping and the subsequent shipping (the “order period” or “horizon period”). Typically, when orders are fulfilled, they are split arbitrarily into denominational quantities without specifying which denominations should be shipped-in and/or shipped-out.
Banking center associates often encounter uncertainty regarding how much currency to order for a future period of time. There are at least three general types of uncertainty: uncertain customer behavior, uncertain associate confidence in systematic results, or uncertain likelihood that process and procedure will be followed as designed. Holding extra currency at the banking center is a common approach to avoidance of errors that might result from the uncertainty. As a result, banking centers now hold more total currency than is needed.
Excessive cash inventory has an opportunity cost, because the cash cannot be utilized for other purposes.
When banking centers underestimate the need for cash and, consequently, cannot distribute the cash to customers in a manner that satisfies the customers' requirements, customer service is degraded and customer satisfaction is reduced. Despite the practice of holding extra inventory, banking centers often place expensive emergency orders for specific denominations.
Cash inventory management methods are therefore used. There are four known primary approaches to cash inventory management:
I. Method One
Initially, a recommended net quantity is arbitrarily split such that if the total net quantity is a ship-out, all denominations will be presented as ship-outs, or if the total net quantity is a ship-in, all denominations will be presented as ship-ins. It is typically assumed that these splits will not necessarily meet customer demand. In a subsequent step, a banking center associate estimates the denominational needs over the order lead time and horizon period, determines the current inventory level of each denomination, and then decomposes the recommended net quantity into an appropriate set of denominational ship-ins and ship-outs.
FIG. 1 shows Method One. Information is input and processed by three components: forecast/order management system 102, existing information systems 104 and TOS/On-site banking center personnel 106. (A “TOS” is a Teller Operations Specialist. A banking center may have a TOS that reviews, edits and approves cash orders.) At step 108, forecast/order management system 102 generates a recommended order quantity. At step 110, existing information systems 104 provide prior day inventory by denomination. At step 112, TOS/On-site banking center personnel provide local knowledge. At step 114, TOS/On-site banking center personnel combine prior day inventory by denomination (output from step 110) with local knowledge (output from step 112) to calculate an order with a denominational split. Recommended order quantity (from step 108) is included in the calculation of the order.
At step 116, TOS/On-site banking center personnel place orders for ship-in and/or ship-out quantities, each having a denominational split. At step 118, forecast/order management system 102 performs a transaction update based on the ship-in and ship-out quantities from step 116.
II. Method Two
Arbitrary denominational splits are eliminated and a banking center associate provides denomination-by-denomination input. The associate estimates needs, assesses current inventory, and breaks down a recommended net quantity into denominational requirements.
III. Method Three
Banking center requirements for denomination splits are forecast by cash vaults. Since there are seven primary currency denominations (1, 2, 5, 10, 20, 50, 100) this system involves at least seven times the computational overhead of methods that do not perform denominational forecasting. The extra computation overhead can be accommodated, because of the small ratio of vaults to banking centers in the banking network and because required denominational data, including historical data, are available at the vaults. This facilitates forecasting.
Denomination specific forecasts of future demand are used to generate separate ship-in or ship-out orders for each denomination using the same order calculation methodology used now for net quantity orders.
IV. Method Four
Banking centers usually do not have transactional data by denomination, but they do have denominational detail for end-of-day balances. This is in an interactive order process that uses those balances along with a predetermined total inventory desired mix. The banking center associate responsible for ordering cash must first declare the amounts of each denomination he would like to receive in the next order. Based on the declaration, the order calculation is completed and the associate is told what quantity of each denomination must be shipped-out. The order calculation is based on a target inventory level, which places a limit on inventory that the associate may maintain.
When making inventory management decisions, holding additional inventory is a common approach to deal with uncertainty. There are at least three general types of uncertainty: uncertain customer behavior, uncertain associate confidence in systematic results, or uncertain likelihood that process and procedure will be followed as designed. As a result, banking Centers now hold more total currency than is needed, but still have to place emergency orders (at higher than normal cost) for specific denominations.
It would be desirable, therefore, to provide apparatus and methods for increasing the accuracy of denominational cash ordering.